SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999
Commission File No. 0-24298
MILLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1566286
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8503 HILLTOP DRIVE
OOLTEWAH, TN 37363
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 238-4171 x238
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of November 30, 1999 was 46,697,625.
<PAGE>
MILLER INDUSTRIES, INC.
INDEX
PART I. FINANCIAL INFORMATION Page Number
----------
Item 1. Financial Statements (Unaudited)
--------------------------------
Condensed Consolidated Balance Sheets -
October 31, 1999 and April 30, 1999 3
Condensed Consolidated Statements of Income
for the Three Months and Six Months Ended
October 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended October 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 10
-----------------------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
-----------------
Item 4. Submission of Matters to a Vote
of Security Holders 17
--------------------------------
Item 6. Exhibits and Reports On Form 8-K 18
--------------------------------
SIGNATURES 19
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MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1999 1999
--------- ---------
CURRENT ASSETS:
<S> <C> <C>
Cash and temporary investments $ 9,883 $ 9,331
Accounts receivable, net 89,051 81,109
Inventories 83,740 77,912
Deferred income taxes 4,394 4,244
Prepaid expenses and other 5,152 12,264
--------- ---------
Total current assets 192,220 184,860
PROPERTY, PLANT AND EQUIPMENT, net 94,982 95,984
GOODWILL, net 105,309 103,292
OTHER ASSETS, net 7,232 8,344
--------- ---------
$ 399,743 $ 392,480
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,971 $ 4,170
Accounts payable 50,316 42,783
Accrued liabilities and other 22,928 16,458
--------- ---------
Total current liabilities 76,215 63,411
--------- ---------
LONG-TERM DEBT, less current portion 127,679 133,850
--------- ---------
DEFERRED INCOME TAXES 8,116 7,916
--------- ---------
COMMITMENTS AND CONTINGENCIES (note 5)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued or outstanding 0 0
Common stock, $.01 par value, 100,000,000 shares authorized;
46,698,797 and 46,679,783 shares issued and outstanding at October 31,
1999 and April 30, 1999, respectively 467 467
Additional paid-in capital 144,695 144,607
Retained earnings 43,362 43,068
Accumulated other comprehensive income (loss) (791) (839)
--------- ---------
Total shareholders' equity 187,733 187,303
--------- ---------
$ 399,743 $ 392,480
========= =========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
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MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------------- ------------------------
1999 1998 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 148,738 $134,055 $283,074 $251,809
--------- -------- -------- --------
COSTS AND EXPENSES:
Costs of operations 122,268 108,970 232,182 203,010
Selling, general, and administrative expenses 19,680 17,820 38,908 34,850
Non-recurring charges 6,041 -- 6,041 --
Interest expense, net 2,792 2,228 5,430 4,268
--------- -------- -------- --------
Total costs and expenses 150,781 129,018 282,561 242,128
--------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (2,043) 5,037 513 9,681
INCOME TAX PROVISION (BENEFIT) (892) 1,958 220 3,918
--------- -------- -------- --------
NET INCOME (LOSS) $ (1,151) $ 3,079 $ 293 $ 5,763
========= ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.02) $ 0.07 $ 0.01 $ 0.12
========= ======== ======== ========
Diluted $ (0.02) $ 0.07 $ 0.01 $ 0.12
========= ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 46,699 46,518 46,694 46,291
========= ======== ======== ========
Diluted 46,878 47,323 47,066 47,283
========= ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED statements of cash flows
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended October 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 293 $ 5,763
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 8,584 6,445
Deferred income tax provision (130) 212
Gain on sales of property, plant, and equipment (220) (589)
Changes in operating assets and liabilities:
Accounts receivable (7,744) (6,891)
Inventories (5,763) (15,018)
Prepaid expenses and other 3,815 1,022
Accrued liabilities and other 9,011 (6,805)
Accounts payable 6,770 4,652
Other assets 316 (2,160)
-------- --------
Net cash provided by (used in) operating
activities 14,932 (13,369)
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (5,058) (9,504)
Proceeds from sales of property, plant, and equipment 1,317 1,341
Acquisition of businesses, net of cash acquired (2,108) (9,611)
Other 108 (21)
-------- --------
Net cash used in investing activities (5,741) (17,795)
-------- --------
FINANCING ACTIVITIES:
Net (repayment) borrowings under line of credit (5,000) 37,500
Payments of long-term obligations (3,712) (4,699)
Proceeds from exercise of stock options 88 77
Repurchase of common stock -- (857)
-------- --------
Net cash (used in) provided by financing activities (8,624) 32,021
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY
INVESTMENTS (15) 105
-------- --------
NET INCREASE IN CASH AND TEMPORARY
INVESTMENTS 552 962
CASH AND TEMPORARY INVESTMENTS, beginning of
period 9,331 7,367
-------- --------
CASH AND TEMPORARY INVESTMENTS, end of period $ 9,883 $ 8,329
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 5,264 $ 4,584
======== ========
Cash payments for income taxes $ 829 $ 4,491
======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
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MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements of Miller Industries,
Inc. and subsidiaries (the "Company") included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
Nevertheless, the Company believes that the disclosures are adequate to
make the financial information presented not misleading. In the opinion
of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, which are of a normal
recurring nature, to present fairly the Company's financial position,
results of operations and cash flows at the dates and for the periods
presented. Interim results of operations are not necessarily indicative
of results to be expected for the fiscal year. These condensed
consolidated financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended April 30,
1999.
2. Net Income Per Share
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net
income per share is calculated by dividing net income by the weighted
average number of common and potential dilutive common shares
outstanding. Diluted net income per share takes into consideration the
assumed conversion of outstanding stock options resulting in .2 million
and .8 million potential dilutive common shares for the three months
ended October 31, 1999 and 1998, and .4 million and 1.0 million
potential dilutive common shares for the six months ended October 31,
1999 and 1998, respectively. Per share amounts do not include the
assumed conversion of stock options with exercise prices greater than
the average share price because to do so would have been antidilutive
for the periods presented.
3. Inventories
Inventory costs include materials, labor and factory overhead.
Inventories are stated at the lower of cost or market, determined on a
first-in, first-out basis. Inventories at October 31, 1999 and April
30, 1999 consisted of the following (in thousands):
6
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October 31, April 30,
1999 1999
----------- ---------
Chassis $16,744 $18,340
Raw Materials 20,186 16,348
Work in process 13,182 12,180
Finished goods 33,628 31,044
------- -------
$83,740 $77,912
======= =======
4. Business Combinations
During the six months ended October 31, 1999, the Company purchased
three towing service companies for an aggregate purchase price of $2.8
million, which consisted of $2.0 million in cash and $0.8 million in
promissory notes. These acquisitions were accounted for using the
purchase method of accounting. The accompanying consolidated financial
statements reflect the preliminary allocation of purchase price as the
purchase price has not been finalized for all transactions. The excess
of the aggregate purchase price over the estimated fair value of net
identifiable assets acquired was approximately $1.7 million.
5. Legal Matters
In January 1998, the Company received a letter from the Antitrust
Division of the Department of Justice (the "Division") stating that it
was conducting a civil investigation covering "competition in the tow
truck industry". The letter asked that the Company preserve its records
related to the tow truck industry, particularly documents related to
sales and prices of products and parts, acquisition of other companies
in the industry, distributor relations, patent matters, competition in
the industry generally, and activities of other companies in the
industry. In March 1998, the Company received a Civil Investigative
Demand ("CID") issued by the Division as part of its continuing
investigation of whether there are, have been or may be violations of
the federal antitrust statutes in the tow truck industry. Under this
CID, the Company has produced information and documents to assist in
the investigation, has corresponded and met with the Division
concerning the investigation, and is continuing to cooperate with the
Division. It is unknown at this time what the eventual outcome of this
investigation will be.
During September, October and November 1997, five lawsuits were filed
by certain persons who seek to represent a class of shareholders who
purchased shares of the Company's common stock during the period from
either October 15 or November 6, 1996 to September 11, 1997. Four of
the suits were filed in the United States District Court for the
Northern District of Georgia. The remaining suit was filed in the
Chancery Court of Hamilton County, Tennessee. In general, the
individual plaintiffs in all of the cases allege that they were induced
to purchase the Company's common stock on the basis of allegedly
actionable misrepresentations or omissions about the Company and its
business and, as a result, were thereby damaged. Four of the complaints
assert claims under Sections 10(b) and 20 of the Securities Act of
1934. The complaints name as the defendants the Company and various of
its present and former directors and officers. The plaintiffs in the
four actions which involved claims in Federal Court under the
Securities Exchange Act of 1934 have consolidated those actions. The
Company filed a motion to dismiss in the consolidated case which was
granted in part and denied in part. The proposed class was certified by
order dated May 27, 1999. The Company filed a motion to dismiss in the
7
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Tennessee case which was granted in its entirety. The plaintiffs in
that case, with permission from the Court, amended and refiled their
complaint, which was dismissed with prejudice by order of the Court
dated March 11, 1999. On April 5, 1999 counsel for plaintiffs filed a
notice of appeal and that appeal currently remains pending. In both
these actions, the Company has denied liability and continues to
vigorously defend itself.
In addition to the shareholder litigation described above, the Company
is, from time to time, a party to litigation arising in the normal
course of its business. The ultimate disposition of such matters cannot
be determined presently, but will not, in the opinion of management,
based in part on the advice of legal counsel, have a material adverse
effect on the financial position or results of operations of the
Company.
6. Stock Repurchase Plan
The Company's board of directors approved a share repurchase plan
during fiscal 1998 under which the Company may repurchase up to
2,000,000 shares of common stock from time to time through March 10,
2000. It is expected that such repurchased shares would be issued as
consideration in business acquisitions currently being negotiated
pursuant to the Company's ongoing acquisition strategy. No shares have
been repurchased under the plan during fiscal 2000. All shares
purchased under the plan during fiscal 1999 (500,000 shares at a cost
of $2.3 million) were reissued as consideration for towing services
companies acquired prior to October 31, 1999.
7. Comprehensive Income
Effective May 1, 1998, the company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
requires additional disclosure of amounts comprising comprehensive
income. The Company has other comprehensive income and expenses in the
form of cumulative translation adjustments which resulted in total
comprehensive income (loss) of approximately $(1.0) million and $3.2
million for the three months ended October 31, 1999 and 1998,
respectively; and $0.3 million and $5.7 million for the six months
ended October 31, 1999 and 1998, respectively.
8
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8. Segment Information
The Company operates in two principal operating segments: (i) towing
and recovery equipment and (ii) towing services. The table below
presents information about reported segments (in thousands):
<TABLE>
<CAPTION>
Towing and
Recovery Towing
Equipment Services Eliminations Consolidated
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
OCTOBER 1999
Net sales-external $ 96,262 $ 52,476 $ -- $ 148,738
Net sales-intersegment -- -- -- --
Operating income (loss) 6,054 (5,305) -- 749
Interest expense, net 1,338 1,454 -- 2,792
Income (loss) before income taxes 4,716 (6,759) -- (2,043)
FOR THE THREE MONTHS ENDED
OCTOBER 31, 1998
Net sales-external $ 88,190 $ 45,865 $ -- $ 134,055
Net sales-intersegment 1,985 -- (1,985) --
Operating income (loss) 5,943 1,388 (66) 7,265
Interest expense, net 840 1,388 -- 2,228
Income before income taxes 5,037 -- -- 5,037
FOR THE SIX MONTHS ENDED
OCTOBER 31, 1999
Net sales-external $ 179,213 $ 103,861 $ -- $ 283,074
Net sales-intersegment -- -- -- --
Operating income (loss) 10,503 (4,560) -- 5,943
Interest expense, net 2,457 2,973 -- 5,430
Income (loss) before income taxes
8,046 (7,533) -- 513
FOR THE SIX MONTHS ENDED
OCTOBER 31, 1998
Net sales-external $ 164,793 $ 87,016 $ -- $ 251,809
Net sales-intersegment 3,270 -- (3,270) --
Operating income 10,235 3,832 (118) 13,949
Interest expense, net 1,814 2,454 -- 4,268
Income before income taxes 8,303 1,378 -- 9,681
</TABLE>
9
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9. Non-Recurring Charges
During the second quarter of fiscal 2000 the Company announced its plan
to further rationalize its towing services operations. The Company
recorded non-recurring charges in the amount of $6.0 million for costs
related to this rationalization. These charges include the cost of
early termination of certain employment contracts and facility leases,
the loss on the disposal of certain excess equipment, and a casualty
loss relating to one of the operations. At October 31, 1999
approximately $.3 million had been charged against the related
reserves.
10. Reclassifications
Certain amounts in the prior period financial information have been
reclassified to conform to the current presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations Recent Developments
---------------------------------
As more fully discussed in Note 4 to condensed consolidated financial
statements, during the six months ended October 31, 1999, the Company
acquired a total of three towing service companies.
RESULTS OF OPERATIONS--THREE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO
THREE MONTHS ENDED OCTOBER 31, 1998
Net sales for the three months ended October 31, 1999, increased 11.0%
to $148.7 million from $134.1 million for the comparable period in
1998. Net sales in the towing and recovery equipment segment increased
9.2% from $88.2 million to $96.2 million due primarily to higher unit
sales of chassis and wreckers. Sales of new products, slide axle
trailers and multi-car trailers, also contributed to the increase in
sales for this segment. Net sales of the towing services segment
increased 14.4% to $52.5 million from $45.9 million due primarily to
the revenue contribution of towing services companies acquired
subsequent to the second quarter of fiscal 1999.
Costs of operations for the three months ended October 31, 1999,
increased 12.2% to $122.3 million from $109.0 million for the
comparable period in 1998. Costs of operations of the towing and
recovery equipment segment decreased slightly as a percentage of net
sales from 85.2% to 84.7%. The towing services segment's cost of
operations increased from 73.7% to 77.7% as a percentage of net sales.
Increases are due to increased labor costs of the towing services
operations along with the associated benefits and workers' compensation
costs, and increased vehicle costs on additions to the fleet.
10
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Selling, general and administrative expenses for the three months ended
October 31, 1999, increased 10.4% to $19.7 million from $17.8 million
for the comparable period in 1998. In the towing and recovery equipment
segment, selling, general and administrative expenses increased
slightly as a percentage of sales from 8.1% to 9.0%. As a percentage of
sales, selling, general and administrative expenses for the towing
services segment decreased to 20.9% from 23.3% primarily due to the
increased revenue base and continued cost reduction efforts.
During the second quarter of fiscal 2000, the Company recorded
non-recurring charges of $6.0 million for the further rationalization
of its towing services operations. See Note 9 above for further
discussion.
Net interest expense increased $.5 million to $2.7 million for three
months ended October 31, 1999 from $2.2 million for the comparable
period in 1998 primarily due to increased borrowings under the
Company's line of credit to fund working capital needs and additional
acquisitions of towing service companies.
Income taxes are accounted for on a consolidated basis and are not
allocated by segment. The effective rate for the provision (benefit)
for income taxes was 43.7% for the three months ended October 31, 1999
and 38.9% for the three months ended October 31, 1998. The difference
between the effective tax rate and the statutory tax rate is primarily
due to the impact of non-deductible goodwill amortization and state
income taxes.
RESULTS OF OPERATIONS--SIX MONTHS ENDED OCTOBER 31, 1999 COMPARED TO
SIX MONTHS ENDED OCTOBER 31, 1998
Net sales for the six months ended October 31, 1999 increased 12.4% to
$283.1 million from $251.8 million for the comparable period in 1998.
Net sales in the towing and recovery equipment segment increased 8.8%
from $164.8 million to $179.2 million due primarily to higher unit
sales of chassis, wreckers, and car carriers. Sales of new products,
slide axle trailers and multi-car trailers, also contributed to the
increase in sales for this segment. Net sales of the towing services
segment increased 19.4% to $103.9 million from $87.0 million due
primarily to the revenue contribution of towing services companies
acquired subsequent to the second quarter of fiscal 1999.
Costs of operations increased 14.4% to $232.2 million for the six
months ended October 31, 1999 from $251.8 million for the comparable
period in 1998. Costs of operations of the towing and recovery
equipment segment decreased slightly as a percentage of net sales from
85.0% to 84.8%. The towing services segment's cost of operations
increased from 72.4% to 77.2% as a percentage of net sales. Increases
are due to increased labor costs of the towing services operations
along with the associated benefits and workers' compensation costs and
increased vehicle costs on additions to the fleet.
11
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Selling, general and administrative expenses increased 11.6% to $38.9
million for the six months ended October 31, 1999 from $34.9 million
for the comparable period of 1998. In the towing and recovery equipment
segment, selling, general and administrative expenses decreased
slightly as a percentage of sales from 9.3% to 8.9%. As a percentage of
sales, selling, general and administrative expenses for the towing
services segment decreased to 21.4% from 23.2% primarily due to the
increased revenue base and continued cost reduction efforts.
During the second quarter of fiscal 2000, the Company recorded
non-recurring charges of $6.0 million for the further rationalization
of its towing services operations. See Note 9 above for further
discussion.
Net interest expense increased $1.1 million to $5.4 million for the six
months ended October 31, 1999 from $4.3 million for the six months
ended October 31, 1998 primarily due to increased borrowings under the
Company's line of credit to fund working capital needs and additional
acquisitions of towing service companies.
Income taxes are accounted for on a consolidated basis and are not
allocated by segment. The effective rate for the provision for income
taxes was 42.9% for the six months ended October 31, 1999 and 40.5% for
the six months ended October 31, 1998. The difference between the
effective tax rate and the statutory tax rate is primarily due to the
impact of non-deductible goodwill amortization and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital,
debt service and capital expenditures. The Company has financed its
operations and growth from internally generated funds and debt
financing and, since August 1994, in part from the proceeds from its
initial public offering and its subsequent public offerings completed
in January 1996 and November 1996.
Cash flows provided by operating activities were $14.9 million for the
six months ended October 31, 1999 as compared to $13.4 million used in
operations for the comparable period of 1998. The increase in cash
flows from operating activities was due primarily to improved working
capital balances.
Cash used in investing activities was $5.7 million for the six months
ended October 31, 1999 compared to $17.8 million for the comparable
period in 1998. The cash used in investing activities was primarily for
capital expenditures for equipment, building expansion and acquisitions
of businesses.
Cash used in financing activities was $8.6 million for the six months
ended October 31, 1999 as compared to $32.0 million provided by
financing activities for the comparable period in the prior year. The
cash was used primarily to reduce the Company's line of credit and
other outstanding long-term debt and capital lease obligations.
12
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The Company has a revolving credit facility of $175 million ( the
"Credit Facility") for working capital and other general corporate
purposes. Borrowings under the Credit Facility bear interest at a rate
equal to the London Interbank Offered Rate plus a margin of 2.50% or
the prime rate plus 1.25%, as elected by the Company. The Credit
Facility is collateralized by substantially all of the assets and
properties of the Company and its domestic subsidiaries. At October 31,
1999, $120 million was outstanding under the Credit Facility. The
Credit Facility imposes restrictions on the Company with respect to the
maintenance of certain financial ratios, the incurrence of
indebtedness, the sale of assets, capital expenditures and mergers and
acquisitions. On May 1, 1998, the Company entered into an interest rate
swap agreement covering the notional amount of $50 million of variable
rate debt to fix the interest rate at 5.68% plus the applicable margin.
The agreement expires at the end of three years unless cancelled by the
bank at the end of two years.
As described in Note 4 to condensed consolidated financial statements,
the Company has expended approximately $2.8 million for the purchase of
towing services companies during the six months ended October 31, 1999.
Capital expenditures remaining for the dispatch system for the towing
services segment are expected to be approximately $0.9 million.
Excluding the capital commitments set forth above, the Company has no
other material capital commitments. The Company believes that cash on
hand, cash flows from operations and unused borrowing capacity under
the Credit Facility will be sufficient to fund its operating needs,
capital expenditures and debt service requirements for the next fiscal
year. Management continually evaluates potential strategic
acquisitions. Although the Company believes that its financial
resources will enable it to consider potential acquisitions, additional
debt or equity financing may be necessary. No assurance in this regard
can be given, however, since future cash flows and the availability of
financing will depend on a number of factors, including prevailing
economic conditions and financial, business and other factors beyond
the Company's control.
STRATEGIC AND FINANCIAL ALTERNATIVES STUDY
The Company announced in May 1999 that its Board of Directors had
concluded its study of potential strategic and financial alternatives
for the Company and had ratified its Special Committee's recommendation
to investigate and pursue the possibility of separating the Company's
RoadOne towing services segment from its towing and recovery equipment
segment through a tax-free spinoff which would result in the formation
of two public companies. The Company engaged J.C. Bradford & Co. as its
financial advisor with respect to these matters.
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Completing any such separation of the two businesses through a tax-free
spinoff transaction would entail the satisfaction of numerous
significant conditions which at this time are uncertain. These
conditions include, but are not limited to, securing an IRS private
letter ruling, an SEC no-action letter, satisfactory banking
arrangements, the approval of the Company's shareholders and a final
decision to proceed by the Board of Directors. The Company can give no
assurance that any such transaction will occur. The Company currently
expects that the spinoff transaction, if completed, would not occur any
sooner than during the fourth quarter of the fiscal year ending April
30, 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," effective for fiscal years beginning after June 15, 1999.
In June 1999, the FASB issued SFAS No. 137, which delayed the effective
date of SFAS No. 133 until June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
The Company has not yet quantified the impact of adopting SFAS No. 133
on its financial statements and has not determined the timing of or
method of adoption of SFAS No. 133. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
YEAR 2000
The "Year 2000" issue refers to the possibility that some
date-sensitive computer software was written with two digits rather
than four to define the applicable year. This software will not
interpret the "00" year correctly, and may experience problems. In
addition, any equipment that has time sensitive embedded chips may have
similar date-related problems. If not corrected, these computer
programs or embedded chips could possibly cause systems to fail or
other errors, leading to possible disruptions in operations or creation
of erroneous results.
The Company, in an enterprise-wide effort, is taking steps to ensure
that its systems are secure from such failures. Our Year 2000 plan
addresses the anticipated impacts of the Year 2000 problem on our
information technology (IT) systems and on non-IT systems involving
embedded chip technologies. We are also surveying key third parties to
determine the status of their Year 2000 compliance programs. In
addition, we are developing contingency plans specifying what the
Company will do if it or important third parties experience disruptions
as a result of the Year 2000 problem.
14
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Our Year 2000 plan is subject to modification, and is revised
periodically as additional information is developed. The Company
currently believes that its Year 2000 plan will be completed for all
key aspects prior to the anticipated Year 2000 failure dates.
With respect to IT systems, our Year 2000 plan includes programs
relating to (i) computer applications, including those for servers,
client server systems, and personal computers and (ii) IT
infrastructure, including hardware, software, network technology, and
voice and data communications. In case of non-IT systems, our Year 2000
plan includes programs related to equipment and processes required to
produce our products in our manufacturing plants.
With respect to its applications programs, the Company's manufacturing
plants began implementing a Year 2000 compliant ERP system in 1997.
Although this project included initiatives outside of the scope of the
Year 2000, the new system replaced an older non-compliant system. The
Company's largest manufacturing facilities have completed their
implementation. The new ERP system also contains the Company's
financial applications, with implementation completed in fiscal 1999
and early fiscal 2000. Additionally, the Company upgraded the
manufacturing system of one of its facilities to a Year 2000 compliant
version. These implementations were not accelerated due to Year 2000
issues and, therefore, their costs are not included in the discussion
of Year 2000 costs below.
With respect to its infrastructure program, the inventory and
assessment phase is complete. The implementation phase is complete as
well, with many components being replaced as part of the Company's
support for the implementation of a new ERP system for manufacturing
and financial applications.
With respect to its non-IT program, the Company has identified embedded
chip technology at all manufacturing locations. A limited amount of
operating equipment is date sensitive. Manufacturers of the affected
equipment have been contacted. The Company has evaluated and made the
suggested modifications and replacements. The total cost of compliance
for the towing and recovery equipment segment is approximately $0.1
million.
The Company's towing services segment has expended approximately $0.2
million in hardware and software upgrades to its operating systems to
ensure Year 2000 compliance. The installation of these upgrades is
approximately 95% complete and the remainder is expected to be
completed prior to December 31, 1999. In addition, it is developing a
contingency plan which will address locations not remediated prior to
January 1, 2000. This segment completed its implementation of financial
systems on a Year 2000 compliant ERP system in Fiscal 1999.
15
<PAGE>
The Company has initiated inquiries of major business partners to
assess their state of readiness regarding Year 2000 issues that could
materially and adversely impact the Company. These major business
partners include, but are not limited to suppliers, financial
institutions, benefit providers, payroll services, and customers, as
well as potential failures in public and private infrastructure
services, including electricity, water, transportation and
communications. The Company has requested those third parties respond
in writing that they will be Year 2000 compliant by the end of 1999.
The Company is reviewing the responses as received and is assessing the
third parties' efforts in addressing Year 2000 issues. Further, the
Company is in the process of determining its vulnerability if these
third parties fail to remediate their Year 2000 problems. Contingency
plans are being developed and include, but are not limited to, using
alternate vendors, manual interfaces, and hard copies. There can be no
guarantee that the systems of third parties will be remediated on a
timely basis, or that such parties' failure to remediate Year 2000
issues would not have a material adverse effect on the Company.
The total cost of the Company's Year 2000 project includes costs for
installing certain new hardware and software upgrades in both of its
business segments of approximately $0.3 million. The total cost is
being expensed as incurred except for hardware or software replacement
costs that have been or will be capitalized. The Company's Year 2000
expenses are paid out of its annual budget for information services.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In January 1998, the Company received a letter from the Antitrust
Division of the Department of Justice (the "Division") stating that it
was conducting a civil investigation covering "competition in the tow
truck industry." The letter asked that the Company preserve its records
related to the tow truck industry, particularly documents related to
sales and prices of products and parts, acquisition of other companies
in the industry, distributor relations, patent matters, competition in
the industry generally, and activities of other companies in the
industry. In March 1998, the Company received a Civil Investigative
Demand ("CID") issued by the Division as part of its continuing
investigation of whether there are, have been or may be violations of
the federal antitrust statutes in the tow truck industry. Under this
CID, the Company has produced information and documents to assist in
the investigation, has corresponded and met with the Division
concerning the investigation, and is continuing to cooperate with the
16
<PAGE>
Division. It is unknown at this time what the eventual outcome of the
investigation will be.
During September, October and November 1997, five lawsuits were filed
by certain persons who seek to represent a class of shareholders who
purchased shares of the Company's common stock during the period from
either October 15 or November 6, 1996 to September 11, 1997. Four of
the suits were filed in the United States District Court for the
Northern District of Georgia. The remaining suit was filed in the
Chancery Court of Hamilton County, Tennessee. In general, the
individual plaintiffs in all of the cases allege that they were induced
to purchase the Company's common stock on the basis of allegedly
actionable misrepresentations or omissions about the Company and its
business and, as a result, were thereby damaged. Four of the complaints
assert claims under Sections 10(b) and 20 of the Securities Act of
1934. The complaints name as the defendants the Company and various of
its present and former directors and officers. The plaintiffs in the
four actions which involved claims in Federal Court under the
Securities Exchange Act of 1934 have consolidated those actions. The
Company filed a motion to dismiss in the consolidated case which was
granted in part and denied in part. The proposed class was certified by
order dated May 27, 1999. The Company filed a motion to dismiss in the
Tennessee case which was granted in its entirety. The plaintiffs in
that case, with permission from the Court, amended and refiled their
complaint, which was dismissed with prejudice by order of the Court
dated March 11, 1999. On April 5, 1999, counsel for plantiffs filed a
notice of appeal and that appeal currently remains pending. In both
these actions, the Company has denied liability and continues to
vigorously defend itself.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on Friday, October 15,
1999 in Norcross, Georgia, at which the following matter was submitted
to a vote of the shareholders:
(a) Votes cast for or withheld regarding the election of six (6)
Directors for a term of one (1) year were as follows:
FOR WITHHELD
--- --------
Jeffrey I. Badgley 32,273,250 584,453
A. Russell Chandler III 32,353,593 504,110
B. Paul E. Drack 32,352,249 505,454
James A. McKinney 32,290,621 567,082
William G. Miller 32,275,639 582,064
Richard H. Roberts 32,355,337 502,366
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K - No reports on Form 8-K were filed by the Company
during the second quarter of the fiscal year.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Miller Industries, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MILLER INDUSTRIES, INC.
By: /s/ J. Vincent Mish
---------------------
J. Vincent Mish
Vice President and
Chief Financial Officer
Date: December 15, 1999
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